Latest / Off the Chart: A Business of Medicine Podcast / S1 Ep44: Noncompete clauses with Emma Schuering, JD
Transcript
- Emma Schuering, JD 00:00:00 I think that this trend against non competes stems from the what is real overuse of them. Keith Reynolds 00:00:14 Welcome to Off the Charts with Medical Economics, a podcast featuring lively and informative conversations with healthcare experts, opinion leaders and practicing physicians about the challenges facing doctors and medical practices. I'm your host, Keith Reynolds, and today we feature a conversation between Medical Economics managing editor Todd Shryock and attorney Emma Stirring of the pulse only law firm. Today, they'll be talking about non-compete agreements in healthcare. Todd Shryock 00:00:49 I'm here with attorney Emma Schering to discuss non-compete agreements today. Emma, thanks for joining us. Emma Schuering, JD 00:00:56 Thanks for having me. Happy to be here. Todd Shryock 00:00:59 So, Emma, what's the latest on the legal rulings regarding non-compete agreements? Emma Schuering, JD 00:01:06 That's a big question. it is constantly in flux. And if you've been paying attention to the headlines, you know that that we're still in a little bit of a space of uncertainty. So the Federal Trade Commission, the FTC, passed a rule earlier this year to effectively ban non-compete agreements. and that that didn't have any type of caveat for physicians. Emma Schuering, JD 00:01:30 And so it would cover any type of agreement that would prohibit, a worker and their employer from limiting that worker's ability to get gainful employment after their working arrangement ended. And that was that was very broad. So it extended past just traditional employee employer relationships. that rule was set to take effect at the beginning of September. On September 4th and just a few weeks before the rule took effect. One of the challenges that was filed in court, in a federal court in Texas, was effective, and the court issued a permanent injunction that essentially prohibited the rule from taking effect as to anyone who was impacted by the rule. So not just employers and workers in Texas, it was a nationwide ban. and so that ruling is effective. Everyone agrees that the ruling prohibits the FTC from enforcing the rule. We expect that those, that those legal challenges, the one in Texas is not the only one will progress through the legal system. Maybe they'll make it to the US Supreme Court. I think that's that's pretty likely, but that can take some time. Emma Schuering, JD 00:02:49 and so as of right now, there is no FTC rule that can be effective to employers and workers to ban non-compete. So then you turn to the state law. And so you're going to be looking to, the law in the various states that might apply to employment arrangements to try and figure out whether, a non-compete is viable under those state laws and if so, what restrictions on those non-compete certain play. Todd Shryock 00:03:19 For positions. What are the typical elements of a non-compete agreement? What what does one look like? Emma Schuering, JD 00:03:26 So physician employment agreements, and and restrictive covenants really aren't that much different from any other restrictive covenant agreement in any other industry, with a few caveats that I'll mention. But, you know, for any non-compete agreement you're looking for, what is the scope of the restriction? So what can the employee not do? Can they not provide certain medical services? Can they not, start competitive Have businesses. Can they not do certain things for a certain period of time within a certain geographic territory? Sometimes that also looks like they can't service certain, customers, vendors, other types of business relationships, for a certain period of time and maybe within a certain, restricted area with regard to physician restrictive restrictive covenants. Emma Schuering, JD 00:04:26 the caveat there is that there is, generally speaking, a public policy against limiting physicians from treating patients who choose to receive medical treatment or healthcare services from the provider of their choice. And that extends just past, you know, physicians. That's really any healthcare provider. That public policy is very strong. because generally speaking, courts want to allow individuals to receive medical services and treatments from the providers of their choice in a number of states. I know there's. There's over ten or so where you cannot, by law, have a non-compete with a physician. in other states, that public policy is still captured in the law, but it's not so strong as to say you can never have a non-compete with a physician. some states require a buyout clause for a physician non-compete to be effective. So what that would look like would, in those states where that law is effective, would, for the non-compete to be effective, there would have to be some amount of money that the physician could pay to be released from that non-compete. Emma Schuering, JD 00:05:38 And without that, monetary exchange being available, the the non-compete is not going to be effective. but just like with all other industries, the trend against non-compete is equally applicable in the medical industry. you may be familiar with, you know, the trend at the state level is to enact laws that restrict, non-compete. And, Pennsylvania, for example, just recently passed a law that, generally speaking, prohibits physician non-compete, with a few exceptions. And it also includes notification requirements to ensure that employers are notifying patients when a physician is, departing the practice and doing things that I understand are already, you know, pretty common in the healthcare industry. So that's what we're looking for. That's where the state law is trending, and that's what you're going to want to look for when you're trying to evaluate whether a non-compete in a physician employment agreement is going to be effective or not. Todd Shryock 00:06:41 Know how enforceable are these? Non-compete is when you're crossing state lines. You mentioned, you know, some states have very, open policies as far as what you can and can't do. Todd Shryock 00:06:53 But if you had a noncompete and say, a state that allowed them and moved to a state that does not. How does that impact the non-compete agreement for the physician? Emma Schuering, JD 00:07:05 That can be a very complex legal analysis. and, and traditionally, it's one for the employer to to worry about. I work with a lot of employers, employers in the health care industry who have employees across different states, and sometimes their contracts for physicians in one state or employees in one state looks different than their contract for employees in another state. because there is an argument that let's say you have an employee who's working in a state like Florida that is pretty non-compete friendly, and you move to a state like Oklahoma that has an outright ban on non-compete, that once that employee moves to a state that is not hospitable to non-compete. if the employer is not doing the things they need to do and contracting correctly to ensure that that may still be enforceable, it it it might have very serious implications on the enforceability of the non-compete. If the employee is living in a state, residing, working in a state that is just not going to enforce a non-compete, and the legal analysis can become very, very complex on both sides for the physician and for the practice. Todd Shryock 00:08:26 Are there alternative legal mechanisms or provisions that can protect a practice's interest without restricting a physician's ability to work? Emma Schuering, JD 00:08:36 Oh, absolutely. Absolutely. And I've been working with clients in this space for a number of years before this, you know, trend against non-compete became so popular. And, you know I, I'm, I believe there are circumstances where a non-compete can be appropriate. You know, you sometimes see in equity transactions, business owners who've been paid a lot of money, to purchase their interest in a business. And maybe that's an appropriate situation for a non-compete. Or you have executives who are very highly compensated. You have specialists who who do R&D research and development and, have very technical knowledge that needs to be protected. But, it even I think that this trend against non-compete stems from the what is real overuse of them with just regular employees and employers who got, greedy about trying to restrict where employers, where their employees could go with competitors after their employment ended. And, and so we are where we are now. Emma Schuering, JD 00:09:49 there are still a lot of really effective tools that practices can use to protect their competitive information. And I'm when I work with clients, that's my first question. It's what are you really trying to protect? Is it your business model? Is it your patient base? Is it a vendor relationship? Is it a referral source? And let's figure out working from that point. What do we really need? What is the what is the least restrictive means to get you where you want to be? And so we talk a lot about things like non solicitation clauses that would prohibit, for example, a physician from leaving and interfering with a vendor relationship or in some situations soliciting patients away. I know in the medical industry that can get that can be a little, more of a gray area because you have ethical considerations and, you know, your patients have a right in in some instances to know where a physician is leaving and have may have notification obligations and things like that. So but you know, non solicitation clauses can still be very effective. Emma Schuering, JD 00:11:03 Nondisclosure clauses can be very effective if there is confidential information or maybe trade secrets that a practice has developed for a practice management tool or some type of unique information program process that a business uses that makes them competitive, makes them special, gives them value. There are lots of ways to protect that, both in a contract with your employees and through, legal mechanisms. If you need to use that when you're losing, employees. I would also say the flip side of that is that to avoid being sued over those types of things. businesses can take some steps to mitigate the risk when they're onboarding employees. So always asking, do you have a contract that contains some type of covenant that would impede how you're able to work for us? Asking those questions up front, making sure that, your employees, as you're onboarding them, are not bringing things that they're not entitled to bring with them, making sure they didn't take information. I know in physician employment agreements, it is very typical for, it to be delineated who owns the patient files. Emma Schuering, JD 00:12:30 And then there are state laws that apply to that. And it can become a very complex analysis. But making sure that employees, as they're onboarding with a new employer, are not bringing things or taking things, at least not at the instruction of the employer and the physician, Position. The employee generally has pretty good reasons to stay above board in that process, and then try and work back to get what they may be entitled to after they've left, rather than doing self-help and taking it with them and trying to deal with the consequences later. Keith Reynolds 00:13:06 Oh, you say you're a practice leader or administrator. We've got just the thing. Our sister site, Physicians Practice. Com your one stop shop for all the expert tips and tricks that will get your practice really humming. Again, that's physician's practice.com. Todd Shryock 00:13:25 If a physician's practice hire someone that they unknowingly like. The new physician had a non-compete agreement and they didn't ask about it, does that practice then have some liability under the law? Are they in danger? Emma Schuering, JD 00:13:42 They they do, they do. Emma Schuering, JD 00:13:43 And that's why, you know, this concept of, well, we won't ask and we'll see what happens is really can be really tricky. approach. I'm always an advocate of asking and just so you know, the risk, and I, I deal with situations all the time where maybe the practice asks and the employee doesn't know they have a they forget they haven't seen a copy of it in ten years and they forget that they signed it. That happens. I think what you have to watch out for as a practice is when somebody is, intentionally untruthful about it. That can be a concern. I do think it's always a best practice to ask and then try and work from that point of information. whether you ask and know or whether you don't ask and should have known, the practice always has exposure. And what I mean when I say that is that they're always legal claims, even though the practice is not going to be a party to that contract between the physician and their prior practice. There are a number of legal claims that bring the practice into being potentially responsible for what they're now employed physician is doing on their behalf in their new role, and it is very common, more often than not, that when these cases come in, what it looks like is former practice sues physician and physicians new practice. Emma Schuering, JD 00:15:19 And, so it should be the expectation for the practice that if you're hiring somebody and there's a risk of litigation, there is a very good risk that the practice is going to be involved in it as well. Todd Shryock 00:15:30 If you fired that person, does that get you off the hook? Emma Schuering, JD 00:15:36 that opens up a whole other set of issues. because then is that practice responsible to the terminated employee you've onboarded them. If you fire that that physician over what may ultimately be an unenforceable restrictive covenants, then you've now potentially wrongfully terminated an employee. And so both practices are in hot water. and and honestly, it doesn't necessarily eliminate the possibility that you can be sued because there's that narrow window of time where they're, they're being the former practice is going to say, okay, but you the damage has been done. You solicited our physician, or maybe you took our physician. That physician brought information and business to you. And for a narrow window was employed with you. And we've been harmed. Maybe there may not be grounds for some type of, temporary restraining order or injunctions that can be, very popular in these types of cases. Emma Schuering, JD 00:16:43 but there's certainly potential claims for damage. So I, I would never encourage anyone to just jump to let's fire the physician and then hopefully it'll all just go away because a it doesn't ensure that it goes away. And B, that can just, you know, create a bigger mess than, than what you've got. So my advice to employers in this situation is always just try and understand your risk. At the end of the day, this is a business decision. And I the clients that I work with, I tell them, let's figure out the risk and then you can tell me what you're comfortable with. And maybe, maybe the hire is good enough that it justifies the risk, and maybe it's not. And maybe there are ways we can help mitigate the risk and figure it out. And maybe there's not. And so ultimately it's a business decision, but it's one that that shouldn't be taken lightly. And to circle back and answer your question, no, I don't think that firing the person, will guarantee that it resolves the issue. Todd Shryock 00:17:41 You mentioned non solicitation agreements. I'm curious if your employee is let's say it's a physician has left your practice. They had an agreement that they have broken. What is your recourse. Like what what happens in that case. Are you suing that ex-employee. Like walk me through the process of what happens and what penalties there would be. Emma Schuering, JD 00:18:08 Sure. So if, if I'm a physician practice, I have an employee that leaves and is is, I believe, violating the contract. it it very often is the case that the first step is, with or without an outside counsel involved or a lawyer engaged. you can send a letter. There's a lot of letter writing campaigns that happen in this space. and, you know, the, the former practice would send a letter to the employee or the employee's representative and say, hey, I think you're violating your agreement and I want you to knock it off. it is very common also to send a letter to the, employees new practice and say, hey, here, in case you didn't know, I expect you do. Emma Schuering, JD 00:18:58 But in case you didn't, here's a copy of the agreement. I believe your employee is violating it. And I need you to help me make sure they stop. And, maybe we get a letter back. Maybe we don't hear anything. and then it becomes up to the practice. Are we satisfied with the response? Are we satisfied with the changing conduct that we've seen? And if we're not, are we ready to take the step into filing a lawsuit? And that's the lawsuit. I would look a lot like what I mentioned earlier. It would be against the individual and potentially against the practice as well, depending on how involved we believe them to be. And you filed a lawsuit. Filing a lawsuit? Relatively easy. You prepare it, you pay the filing fee in the proper court, and you're off to the races. In these types of cases, like I mentioned earlier, it can be very popular to seek, and temporary restraining order or a preliminary injunction, which means that you're asking the court to put a stop to the conduct in violation of the contract or the law at issue. Emma Schuering, JD 00:20:08 the burden to prove that is on the former practice, but it also moves pretty quickly. And so in these cases, it can it can be pretty typical that the same day the case is filed, someone's communicating with the court and you can find yourself, if you're the practice that hired the physician and the physician, you can find yourself needing to be in court in 2440 eight hours to have a very expedited hearing to figure out what's going on. Just the court need to intervene to maintain the status quo. Well, we continue to evaluate the claims, and that's what that TRO or injunction would look like. It would be if it's granted an order that would say, okay, physician and new practice. I think there's a possibility, a likelihood that just based on what we see right now, that your former practice could be right here and that they will be irreparably harmed if I do not court intervene and tell you to stop doing x, y, z that is in violation of the contract or the law. Emma Schuering, JD 00:21:20 And then that order would remain in place for whatever duration of the litigation, unless it were changed by the court or things. Circumstances change. So the litigation, it's it's it should be a last resort because it's it's expensive, it's disruptive, it's time consuming. And I'm saying that as the lawyer that handles litigation, I mean, it's just, it it can burn really fast, really quickly. And it can be incredibly disruptive, particularly in the healthcare industry, when the goal should be getting everybody back to taking care of patients and not being in court or pulled away to to to answer for things. And I do find that these types of cases more often than not, resolve pretty quickly. But in the interim before they do, they are they are busy. And, it can just be very, very time consuming, expensive and disruptive. Sydney Jennings 00:22:24 Say, Keith, this is all well and good, but what if someone is looking for more clinical information? Keith Reynolds 00:22:29 Oh, then they want to check out our sister site, Patient Care Online dot online.com. Keith Reynolds 00:22:34 The leading clinical resource for primary care physicians. Again that's patient care online.com. Todd Shryock 00:22:44 If a practice owner wants to implement a non-compete for physicians that he or she hires, what do they need to know? Emma Schuering, JD 00:22:55 I think the first step is figuring out if you actually need a non-compete, because, like we talked about earlier, there are lots of mechanisms that can get you to the same place that you want to be without being so burdensome as being a non-compete. And I will tell you, as as an attorney who litigated these cases, judges have a hard time enforcing contracts that essentially say to a, you know, a highly trained, educated healthcare professional, you can't go work in your field of choice in a certain area, particularly when patients are involved. judges just have a hard time. Other people, they have a hard time agreeing with that. And so my first piece of advice is always, do we really need a non-compete and can we get by with the alternatives around that? and if if the answer is no, we still want to pursue a non-compete. Emma Schuering, JD 00:23:51 You want to look very closely at the applicable laws and make sure that, you're not running afoul of any of those laws with the contract that you're proposing to the the physician. It has become really popular as states implement restrictions on non-compete to include penalties if you violate it. there are states that Colorado is a good example. D.C. is a good example where just offering a, prohibited non-compete, you can expose a practice to penalties and the the law varies so much, state by state that you're just going to want to look very carefully and make sure that you really understand what the law in the the potential spaces where this physician might be working or your business is located. what that law says and what it allows. because there can be really serious, penalties and consequences for running afoul of that. Beyond that, I would say you want to make sure I see this a lot. if you're to a point where you need a non-compete, you've vetted the non-compete with the applicable state laws. You need to make sure there's consideration. Emma Schuering, JD 00:25:09 And what that means is that the physician is receiving something of value for signing the contract. You can't just put it in front of them on a, you know, on a Thursday and say, hey, can you sign this? And I need you to sign it to keep working for us. I guess in a handful of states that might be enough. But for the most part, you want to be very thoughtful about what is being exchanged with the physician so that they are signing on to this restriction. And sometimes that can look like a signing bonus. Sometimes if this can be offered at the outset of employment, that's great. It's some states require that. and then just making sure again that there's something of good, fair value that's being given to the physician in exchange for them to sign the agreement is going to be really important. I see that piece. It's pretty basic, but I see it overlooked sometimes. Todd Shryock 00:26:05 Is there anything else about non-compete? So you would like to mention that we haven't talked about? Emma Schuering, JD 00:26:14 I think that they're becoming very unpopular. Emma Schuering, JD 00:26:17 And, I, I've been speaking on this subject a lot lately, and I just think that it savvy practitioners, savvy employers are preparing for a world where non-compete just aren't an option. And that is where our law is headed. and even in states like my own in Missouri, that I think non-compete, we're ways away from banning them. There are still laws being proposed to ban them, and that's happening across the country. Earlier, you know, I think this year we're up to well over 50 state laws being proposed to ban non-compete. And of course, most of them will not be successful. But that is the trend. And so I think it's a really good idea to start planning for what it looks like without non-compete and finding new creative ways to protect, a practice to protect what the practice values and to shore up those physician relationships in a manner that doesn't rely on a non-compete because. What could be really concerning is if a practice finds itself in a position of having to completely eliminate a non-compete from a contract by a certain date, which is what the FTC rule was proposing. Emma Schuering, JD 00:27:39 and that can be really problematic if you're not planning and aren't prepared for, what that might look like. And so while we're in this space where there are no deadlines to eliminate, the non-compete in, in some states, in most states and there's no federal, mandate to eliminate non-compete, I think it's smart for both physicians, health care providers, employees, and practices to start preparing for what that might look like in the future. Todd Shryock 00:28:13 Very interesting conversation, Emma. Thanks for joining me today. Emma Schuering, JD 00:28:17 Yeah, Todd. Emma Schuering, JD 00:28:17 Thanks so much for having me, I appreciate it. Speaker UU 00:28:22 May I do? You think? Keith Reynolds 00:28:34 Again, that was medical economics managing editor Todd Shryock and attorney Emma Shearing of the Pulcinella law firm. My name is Keith Reynolds. And on behalf of the whole medical economics team, I'd like to thank you for listening. And I ask that you please subscribe to the show on Apple Podcasts and Spotify. Also, if you'd like to digest the best stories Medical Economics publishes delivered straight to your email six days a week, subscribe to our newsletter at Medical Economics. Keith Reynolds 00:28:57 Com. Medical economics Physicians Practice and patient care online are all members of the MG Life Sciences family. Thank you. Thank. You.